New forms of finance

Quickly: I want to apologize for the downtime and slow loading of the blog yesterday. Something was out at Squarespace. Actually, Squarespace should apologize to you, but they aren’t going to. So sorry. Hopefully it’s fixed. Now on to the main event…

Lots of people are trying to solve the problem of the unbanked in Vietnam (and Southeast Asia in general). Just to set the background, there are 49 million adults that don’t have a bank account in Vietnam. That’s 69% of the population. Only Indonesia has more adults unbanked, and even then the percentage of the population is lower.

This data is from a recent report from Temasek, Google and Bain about the e-Conomy (what a bad name) in Southeast Asia. You can find the report here.

They attribute the unbanked to the following:

1) Cost: it is too expensive to build physical presences in small towns.

2) Absence of public registers and identification systems: We have talked about these before. Vietnamese ID system is tied to your home town, and if you move, you have to reregister, which isn’t always possible.

3) Lack of reliable credit information: This is a problem in lots of developing countries. There is no central credit bureau, plus lots of people don’t have tax returns or anything that can attest to income.

Obviously, Google (and many others) thinks the internet can solve all of this, and they are probably right. If they do, then numbers are staggering. For Southeast Asia as a whole, wallets could be $114bn, digital payments $1.1 trillion and consumer payments $2.3 trillion by 2025.

Lots of people are betting that a solution can be found, and that solution will be lucrative. Just this week, we saw two announcements in this vein:

Hong Leung Bank Vietnam launched a digital bank in Vietnam.
Sendo just got a $61 billion fundraising round. That’s a $hItload of money. Congrats! While Sendo is mainly an ecommerce site, it also has an e-wallet that is ranked 3rd in terms of transaction value.

The interesting thing for Sendo, specifically, is that focuses on tier 2 cities (basically not Hanoi and Ho Chi Minh City).

There is a good reason for companies to focus on the big cities: that’s where the money is. Per capita spending is around $364 in HCMC and Hanoi but just $79 outside, or just about 20%. But that doesn’t mean there is no money elsewhere. And these markets are generally less competitive. Growth should be higher over the next 6 years in these second-tier markets (4x compared to 2x for big metros), according to the report.

Other interesting points from the report:

Shopping festivals are a big deal. Just like Black Friday in the US, Southeast Asia has 9.9 (Sept. 9), Singles day (Nov. 11) and 12.12 (Dec. 12). Weirdly, they are all in the back half of the year. In Vietnam there is also Tet in late January or early February.
As more people shop daily for quotidian items, the average order is falling: it is now between $15-20. In poorer regions is can be sub-$10. After overhead, cost to pick and package plus delivery, margins are thin! We talked about this in the context of Uber eats, but fees from the customers don’t cover the costs, so now the retailers have to pay as well. That’s going to be tough for them going forward. As someone who has worked for retailers, the margins are already small.
Lots of travel in ASEAN is between ASEAN countries. According to the ASEAN secretariat (cited in the report), it makes up 50% of international travel.
Every e-commerce company in Southeast Asia is going “horizontal,” offering more services to boost engagement. They are following the Chinese model here, where all types of services are bundled into one app/service: not just ecommerce, but travel, and wallets, and gaming.
Funding remains strong, up 7% in 1H2019 to $7.6bn. Sendo is a good example of this. There is only one unicorn, VNG.

I will leave you with this chart below. Some interesting data and forecasts for the Vietnamese “e-Conomy”.

VietEcon

New forms of finance

VietEcon